Understanding Prepaid Debit Cards: What You Need to Know

Prepaid debit cards might seem like a perfect solution. They prevent overspending, typically don’t allow overdrafts, and provide a banking alternative for those without traditional bank accounts. Government benefits, like Social Security or unemployment insurance, are often distributed via prepaid debit cards. Additionally, they are sometimes given as gifts, although they differ from regular gift cards in several key ways.

Despite their convenience, prepaid debit cards come with a range of fees that can add up if you’re not careful. The Consumer Financial Protection Bureau (CFPB) introduced new rules in April 2019 to make these fees more transparent, but it’s still essential to understand your card’s terms to avoid unnecessary costs.

Key Takeaways

• Fees Galore: Prepaid cards can come with various fees, including signup fees, monthly fees, and transaction charges.
• New Protections: The CFPB’s 2019 rules aim to make fees more transparent.
• Tracking Expenses: Prepaid debit cards don’t issue statements automatically, so you’ll need to monitor your spending.

Read the Fine Print

Many prepaid card companies bury their fees in the fine print of the cardholder agreement, making it crucial to read carefully. These fees can significantly impact your card’s balance. Here are some common fees to watch for:

• Monthly Fees: A regular charge just for holding the card.
• ATM Withdrawal Fees: Fees for taking out cash at ATMs.
• Inactivity Fees: Charges for not using the card over a certain period.
• Activation Fees: One-time fee for setting up the card.

Example: The Visa RushCard charges a one-time card fee ranging from $3.95 to $9.95, a monthly fee of $5.95 to $7.95 (depending on whether you set up direct deposit), and a $1.00 fee per purchase on the pay-as-you-go plan. These are just a few of the potential fees users could encounter.

Monitor Your Card Activity

Unlike traditional debit and credit cards, prepaid debit cards do not automatically issue statements. Under the new CFPB rules, however, you should be able to monitor your account for free. Many card issuers provide online portals or mobile apps for tracking spending. Some also offer text message alerts for charges and balances.

Protect Your Card

Prepaid debit cards can be susceptible to theft. If your card is lost or stolen, report it immediately to invoke the CFPB’s protections. Some cards may charge a fee to replace a lost or stolen card, so be sure to check the terms.

How to Get Rid of Prepaid Debit Cards

If you no longer need your prepaid debit card, there are several ways to use up the balance and avoid fees:

1. Use It Up: Purchase items you won’t return, like groceries. Make sure your total, including tax, is less than the card’s balance. If necessary, split the payment with another method.

2. Purchase a Regular Gift Card: Convert your prepaid card into a more manageable gift card from a store you frequent. Grocery stores often sell a variety of gift cards, making this an easy option.

3. Withdraw Cash: If possible, withdraw the entire balance as cash. Be aware of any associated ATM or transaction fees, but this can be a straightforward way to use up the card.

4. Close the Card and Request a Refund Check: You may be able to close the account and request a check for the remaining balance. Note that this option might include a fee, and you’ll need to deposit or cash the check.

Conclusion

Prepaid debit cards offer a convenient alternative for managing funds without a traditional bank account. However, they come with various fees that can add up quickly. Understanding these fees and monitoring your card’s activity can help you make the most of your prepaid debit card while avoiding unnecessary costs. Always read the fine print and be proactive in managing your card to ensure it serves your financial needs effectively.